Which statement accurately describes the difference between independent directors and de facto directors?

• A. Independent directors have no material ties to management; de facto directors act as directors without formal appointment.
• B. Independent directors are always elected by shareholders; de facto directors are appointed by the board.
• C. Independent directors are employees of the company; de facto directors are external consultants.
• D. Independence is irrelevant to governance.

Answer: (A)

The main concept is the distinction between independence in governance and acting as a director without formal appointment. Independent directors sit on the board to provide objective oversight and must have no material ties to management that could bias their judgment. De facto directors, on the other hand, are individuals who perform the duties of a director and participate in directing the company without having been formally appointed.

So the statement that best captures the difference says independent directors have no material ties to management, while de facto directors act as directors without formal appointment. This highlights two separate ideas: independence is about relationships and potential conflicts that might affect judgment, and de facto status is about who is actually directing the company in practice, even without official appointment.

The other points are not accurate: independent directors are not necessarily employees, and governance relevance relies on independence rather than being universally determined by how they were elected; and independence is not irrelevant to governance.